Every day we need to make estimates because we don't have a perfect understanding of the world. How long will that car take to get here?

So, how well do you estimate? Some people are over-confident.

I have made a test of over-confidence based on a famous study. It's a fun and possibly surprising way to spend five minutes. As Donald Rumsfeld said, we all know we have "known unknowns" and "unknown unknowns". This little quiz will investigate how you good you are at telling the difference. Follow this link to start the 10 question quiz.

Explore the personal libraries of successful chief executives and discover what makes them think, not compete."

However, I don't think Churchill spent 6 years only reading after losing the 1944 general election. It was during this period that he did a lot of writing, in fact (such as has 6 volume history of the second world war). I have decided that I must read the 7 Pillars of Wisdom; I hope it is out of copyright and therefore available from Project Gutenberg.

Importers with substantial Chinese purchases must be careful about hedging the currency risk. Naive strategies can lead to losses, and also to hedges which are possibly not compliant with IFRS requirements.

Are you interested in knowing when you should hedge currency risk, and when you should manage it as a profit-making business risk?

The CNY is not a convertible currency. Typically, Chinese exporters invoice in USD. A European importer therefore sees a USD/Euro risk, and hedges accordingly. It is quite easy to meet the requirements for the hedges to have fair value changes kept on the balance sheet.

However, the risk is that often the purchasing contract with the Chinese party allows for USD price changes should the CNY/USD rate change. The current context is one where the CNY is expected to strengthen over time, and there exists the possibility of dramatic changes in exrate should the Chinese authorities be unable to contain revaluation pressures.

In this case, the European importer holding forward contracts in USD is vulnerable. If we assume a revaluation of the CNY matching simply a decline in the USD, so that the CNY/Euro rate remains unchanged, we can see a loss coming, a real cash out. For example, imagine in January 2007, the CNY/USD rate is 0.10 and the USD/Euro rate is 0.70.

A product costs CNY 10, giving a price of USD1. The importer plans to buy 100 units in December 2007, and in January takes a forward contract to buy 100 USD for 70 Euro (I'll keep the forward rates the same as spot rates).

At sometime during the year, the USD falls by 10% against both the Euro and the Yuan. The Chinese exporter takes advantage of the currency clause in the contact, and increases the USD price to compensate (let's say by 10%).

In December, the forward contact is executed. The forward contract is a loss of course, since the USD are purchased against an exchange rate which is now too expensive. Normally, this is of no concern, since the same exchange rate development makes the purchased items, also in USD, cheaper. The net effect is neutral. However, this time, the USD prices have increased by 10%. So the importer makes a loss on the hedging, and on the invoice price.

Obviously, this is because the hedging contract did not hedge the real risk, which is Euro/CNY. For this reason, I question that these hedges can meet the requirements of accounting standards (eg IFRS 7).

At this stage, hedging solutions for CNY risks need careful investigation: there are no simple solutions.

Today I want to pay tribute to a small box in my desk drawer. It is a box of Red-Stripe staples. The staple is an old invention. A small piece of cheap metal is simply bent into shape. It is almost a pure commodity. The makers of Red-Stripe staples, however, found a way to add an innovation. This is to me is like the miracle of a plant growing in the sahara. Adding value in such barren soil is inspiring.

A Red-Stripe staple has a small groove cut into the broad part of each staple, in the middle (that is, the part of the staple that you see from the front of the stapled page). A red stripe is painted on the front. If you want to remove the staple, you bend the paper so that the staple is bent at the red stripe. The staple snaps. It is by far the easiest way to remove a staple. Fantastic, hats off.

Since 2003 I motivated Philips to lead European industry to oppose punitive anti-dumping tariffs imposed on energy-saving Compact Fluorescent lamps made in China.

I will summarise what I learned in case it is helpful for others. The European Commission has a "trade defence" regime which is necessarily compatible with WTO requirements, and many developing economies copy the European way-of-working.

First, I will summarise the technical process,

and then the European political decision making process.

Finally, I will discuss the lobbying effort I conducted inside Philips, how we structured the project team and how we worked with competitors and NGOs. It is a case study of the modern role of Finance leadership.

This will be a long and complex article; if you are interested in my experience, contact me rather than wait for the article to be finished.